Greenberg Suit Against U.S. Over AIG to Proceed in Court

July 3 (Bloomberg) -- Maurice “Hank” Greenberg, the
former chief executive officer at American International Group
Inc., won a judge’s approval to proceed with a $25 billion
lawsuit against the U.S. in the Court of Federal Claims.

Greenberg’s Starr International Co. sued the government on
Nov. 21, calling the public assumption of 80 percent of AIG
stock in September 2008 a violation of the constitutional rights
of shareholders to due process and equal protection of the law.

U.S. Claims Judge Thomas Wheeler yesterday rejected a U.S.
request to dismiss the lawsuit, saying in a 49-page opinion that
he needed more information on the terms of the company’s 2008
bailout in order to determine whether the U.S. took property
from AIG shareholders without just compensation.

“Whether AIG or the government caused or contributed to
the dire financial situation of AIG in September 2008, and
whether AIG was the particular intended beneficiary of the loan
agreement, are factual issues to be considered at a later
stage,” Wheeler said. “Given the existing factual disputes on
these issues, the court denies the government’s request to
dismiss Starr’s takings claim on the basis that the loan
agreement was a rescue of AIG from the consequences of its own
business risks.”

Fairness Opinions

Starr International, AIG’s largest shareholder at the time
of the bailout, claimed that while the U.S. got so-called
fairness opinions from banks on exchanging two groups of
preferred stock, it failed to get such an opinion on exchanging
a block of preferred stock for 562.9 million shares “for
virtually nothing,” according to the complaint.

AIG was added as a “nominal” defendant in the case,
meaning the company would be bound by any judgment. AIG’s
lawyer, Joseph Allerhand of Weil Gotshal & Manges LLP in New
York, told Wheeler at a June 1 hearing that the insurer would
“weigh in” once the judge decides whether the case will move
forward.

Charles Miller, a Justice Department spokesman, declined to
comment on the ruling. Alison Preece, a spokeswoman for the law
firm representing Starr International, didn’t immediately
respond to an e-mail message seeking comment on the ruling after
normal business hours.

Starr International alleges the government paid $500,000
for a stake in the company that was worth $25 billion.

Lehman Brothers

According to the complaint, the day Lehman Brothers
Holdings Inc. filed for bankruptcy on Sept. 15, 2008, the
government brokered talks among several banks. The meeting was
aimed at arranging private financing for a loan to address AIG’s
liquidity problems.

Starr International officials asked to attend the meeting
and were denied, according to the complaint.

The claims court handles cases against the federal
government for money, including allegations that the U.S. took
private property for public use without just compensation in
violation of the Fifth Amendment to the U.S. Constitution.

Once the government gained control of the insurer, it used
about $32.5 billion of AIG’s assets to offer so-called
“backdoor bailouts” to financial institutions, according to
Starr International’s lawsuit.

The Justice Department said in court papers that AIG agreed
to the bailout and Starr International shouldn’t be allowed in a
court case to “rewrite” the insurer’s rescue agreement and
make American taxpayers pay $25 billion more.

The case is Starr International Co. v. U.S., 1:11-cv-00779,
U.S. Court of Federal Claims (Washington).